A Blockbuster Offensive

Blockbuster Inc. June 12 upped the ante in its rental turf war with Netflix by implementing a series of strategic initiatives aimed at undermining the online movie rental pioneer.

The Dallas-based No. 1 movie rental service introduced Blockbuster By Mail, a mail-only plan with subscriptions starting as low as $4.99 per month for two rentals out at a time. The offer also includes a coupon for a free in-store movie or video game rental.

All movies and games are ordered online and can be returned in-store similar to Blockbuster Total Access. Unlike Total Access, however, subscribers can only receive new titles from their rental queue by mail — not in-store.

Blockbuster is offering free trials of both Total Access and By Mail to first-time customers.

Netflix, which has offered a $4.99 monthly plan for some time, recently added three digital movie files from its PC-based streaming service for the so-called “5 for $5” rental plan.

Shane Evangelist, SVP and GM of Blockbuster Online, said the initiatives were aimed at capturing what he said would be a 43% surge in online movie rentals in 2007.

He said before the launch of Total Access, Blockbuster Online attracted 1.5 million subscribers in two years. Pachter said all new subscribers and upwards of two-thirds of the original online subscribers have migrated to Total Access.

That leaves about 1 million subscribers who Pachter says rent primarily online and not in-store. The $1 price reduction to its most popular online rental program will cost Blockbuster about $1 million per month — a loss Pachter says the company can easily make-up increasing Total Access monthly rates 50 cents.

“It only takes a couple hundred thousand new Total Access subs to offset the $12 million they are giving away on online only,” Pachter said.

Blockbuster's announcements sent shares of Netflix falling more than 7% in heavy mid-day trading. Several analysts reportedly described Blockbuster's moves as “negative for Netflix.”